Stilley Corporation had earnings after taxes of $438,000 in 20X2 with 200,000 shares outstanding. The stock price was $42.10. In 20X3, earnings after taxes declined to $208,000 with the same 200,000 shares outstanding. The stock price declined to $28.30. a. Compute earnings per share and the P/E ratio for 20X2. (Do not round intermediate calculations. Round your final answers to 2 decimal places.) b. Compute earnings per share and the P/E ratio for 20X3. (Do not round intermediate calculations.

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Question:

Stilley Corporation had earnings after taxes of $438,000 in 20X2 with 200,000 shares outstanding. The stock price was $42.10. In 20X3, earnings after taxes declined to $208,000 with the same 200,000 shares outstanding. The stock price declined to $28.30. a. Compute earnings per share and the P/E ratio for 20X2. (Do not round intermediate calculations. Round your final answers to 2 decimal places.) b. Compute earnings per share and the P/E ratio for 20X3. (Do not round intermediate calculations. Round your final answers to 2 decimal places.)\

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Answer:a) Earnings Per Share for 20X2 = 2.19P/E ratio for 20X2 = 19.22b) Earnings Per Share for 20X3 = 1.04P/E ratio for 20X3 = 27.21Explanation:a) Compute earnings per share and the P/E ratio for 20X2.The compute the earnings per share use the following:Earnings Per Share for 20X2 = (Earnings after tax-Preference Dividend) / shares outstanding[tex] = \frac{438,000 - 0}{200,000} = 2.19 [/tex]Earnings Per Share for 20X2 = 2.19Then find P/E ratio:P/E ratio for 20X2 = Market Price per share / Earnings Per Share[tex] \frac{42.10}{2.19} = 19.224 [/tex]P/E ratio for 20X2 = 19.22b) Compute earnings per share and the P/E ratio for 20X3.The compute the earnings per share use the following:Earnings Per Share for 20X3 =(Earnings after tax-Preference Dividend) / shares outstanding[tex] = \frac{208,000 - 0}{200,000} = 1.04 [/tex]Earnings Per Share for 20X3 = 1.04Then find P/E ratio:P/E ratio for 20X3 = Market Price per share / Earnings Per Share[tex] \frac{28.30}{1.04} = 27.21 [/tex]P/E ratio for 20X3 = 27.21

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